Richard Steiff, a toy designer working for the family firm in Giengen, Germany, traveled to America in late October 1902 to see a touring American circus and also to search for new ideas for new toys. Among the performing animals he saw at the circus was a troupe of bears which peaked his interest. They sparked off his ideas and he saw the possibility of making a bear toy jointed in a similar way to the dolls that the Steiff family produced. He put his thoughts on paper for his aunt, Margarete Steiff, who had founded the toy firm in 1860. She immediately liked the idea and sent Richard to visit the local zoos to sketch the bears.

Richard Steiff had a different vision for his toy bear--one that would be able to stand upright. Previous bear toys had been made from real fur and mostly on wheels, but had copied the stance of real bears on all fours.

Theodore Roosevelt, famous for his life as a rough-rider and for being the 26th president of the United States, was the namesake of the Teddy Bear. In November 1902, the president was relaxing during a trip to settle a border dispute in Mississippi and was taking part in a hunting trip in Mississippi. Having no luck in finding a bear, members of his hunting party tracked and caught a large female bear and tied it to a tree. They invited the President to shoot the bear as a trophy of his hunting trip. When the President arrived on the scene, he refused to shoot the bear, considering it to be unsportsmanlike. The incident caused Clifford K. Berryman to draw a cartoon for the Washington Post titled "Drawing The Line in Mississippi" which linked the incident to the political dispute that had taken President Roosevelt to Mississippi in the first place.

The cartoon drew immediate attention and the cartoon bear became very popular. In Brooklyn, New York, shop owner Morris Michtom displayed tow toy bears in the window of his candy store. The bears had been made by his wife Rose from black plush stuffed excelsior and finished with black button eyes. Clifford Berryman often drew his little bear with Teddy Roosevelt, and he called it the "Roosevelt Bear", while President Roosevelt called the bear the "Berryman Bear". Michtom soon recognized the immediate popularity of the new toy bear. He wrote a letter to President Roosevelt asking his permission to christen the new toy bear "Teddy Bear" in memory of the hunting trip. The President gave his blessing and added that he did not know how his name could help the stuffed animal business.

As demand for the Teddy Bears increase, Michtom moved his business to a loft where, with the backing of the Butler Brothers, opened the Ideal Novelty and Toy Company, still one of the largest American toy companies in existence today. However, they were not the only company to make Teddy Bears. Around the same time, the Steiff Company of Giengen, Germany, introduced the stuffed, jointed bear, known as "Bear 55PB", at the 1903 Leipzig Toy Fair. It was here where a New York toy importer, Herman Borgford of George Borgford & Company, ordered 3000 of the Steiff bears for shipment to the USA because of the popularity of the teddy bear toy there.

Teddy Bears were considered children's toys until actor Peter Bull wrote "The Teddy Bear Book" about people's childhood bears. The book became quite popular and made it acceptable for grown-ups to love teddy bears, and teddy bear collecting became very popular. Today, children and adults love teddy bears, whether they are inexpensive plush bears made by one of the popular toymakers, or exclusive bears made by artists from unique materials.